Georgia’s Southern Mutual to Affiliate with Donegal Mutual

September 8, 2009

Pennsylvania-based property/casualty insurer Donegal Mutual has agreed to an affiliation that brings Southern Mutual Insurance Co. into Donegal’s insurance pool and gives the Georgia insurer additional products to sell.

According to Donald H. Nikolaus, president of Donegal Mutual Insurance Co., and Allen R. Green, president of Southern Mutual Insurance Co., Donegal Mutual has agreed to provide quota share reinsurance to Southern Mutual for up to 100 percent of its current and future business. Donegal Mutual will include this business in its pooling agreement with Atlantic States Insurance Co., a subsidiary of Donegal Group Inc.

Closing of the affiliation is subject to a number of conditions, including approval by the Georgia Commissioner of Insurance. The firms expect the transaction to close in the fourth quarter of 2009.

Donegal Mutual and Atlantic States have participated in a pooling agreement since 1986 under which substantially all of their premiums, losses and expenses are pooled and each company is allocated a given percentage of the combined underwriting results.

The proposed transaction includes other features:

  • Donegal Mutual would purchase a surplus note of Southern Mutual in the principal amount of $2,500,000;
  • Donegal Mutual would license to Southern Mutual Donegal Mutual’s WritePro and WriteBiz technology, which permits agents to underwrite applications and issue policies automatically through the internet and enhances ease of use;
  • Southern Mutual will retain its mutual status, its Georgia domicile and its current office location with the same management, employees and agents;
  • Donegal Mutual would assist Southern Mutual in offering additional insurance products and coverages; and
  • Designees of Donegal Mutual would become a majority of the members of Southern Mutual’s board of directors.

Donegal Mutual is a member of the Donegal Insurance Group, which had $1.0 billion in assets and $489 million in surplus at June 30, 2009. The Donegal Insurance Group has net written premium of $452.2 million in 2008. The Donegal Insurance Group has a group A.M. Best rating of A (Excellent).

Donegal Mutul arranged a similar pooling agreement with Sheboygan Falls Mutual of Wisconsin in 2007. In 2008, Donegal acquired the insurer.

Southern Mutual is a mutual fire insurance company that was formed in 1847. Its marketing territory is Georgia and South Carolina. Southern Mutual had net written premiums of approximately $12 million in 2008.

Donegal Mutual believes the affiliation will enable both Donegal Mutual and Southern Mutual to increase their personal lines business in Georgia and South Carolina and begin to offer commercial lines.

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